Global chip shortage: How manufacturers can cope over the long term

Earlier this week, the Senate passed legislation aimed at countering China’s growing economic influence with a bill that includes more than $50 billion for the semiconductor industry. It now must pass the House before going to President Biden for his signature. Although there have been predictions that the global semiconductor crisis will end by 2022, a computer researcher at Wichita State University warns the crisis is likely to last a few years.

The reason is that boosting the semiconductor supply hinges on new production facilities in the works from Intel and the Taiwan Semiconductor Manufacturing Company, according to Abu Asaduzzaman, Ph.D., an associate professor of computer engineering and director of Wichita State’s undergraduate computer engineering program.

SEE: Global chip shortage: How to manage until your chips come in (TechRepublic)

Roadblocks to solving the chip shortage

More and more chips will be required for the next several years, given the
massive rise in demand for chip-dependent technologies

, Asaduzzaman said. Currently, the U.S. produces about 12% of the chips–the majority are produced by TSMC in Taiwan and Samsung in South Korea, he said. “If Intel and TSMC can’t build new facilities in less than two years, then I predict this crisis will last at least three years,” he said.

Another issue is the complexity of increasing production, he said. Chip production requires the development of intricate, sensitive and enormously expensive factories, Asaduzzaman said. “It’s simply not possible that one hires more people and immediately production will go up,” he said. “Chip production needs highly skilled professionals and highly sophisticated manufacturing facilities.”

Although it is very important to shift more production to the U.S., there are challenges in doing so, Asaduzzaman said. “Currently the number of semiconductor fabrication foundries in the U.S. is not adequate. If we help overseas-based companies to build factories here, that will be good. But we definitely don’t want to send all our technology production overseas and then have no control. That will be a big mistake.”

However, one ray of hope is that policy provisions may encourage domestic production of semiconductors, Asaduzzaman said. “For instance, regulations could require U.S. companies that buy semiconductors to purchase a certain percentage from domestic producers. Industries have to use locally produced chips to make sure that local chip industries can sustain.”

Asaduzzaman called it “insulting and incorrect” that some overseas chip manufacturers believe the U.S. doesn’t have the skills and cannot keep the cost low to compete with others in the industry. “We are the ones who invented the chip technology; now we are depending on overseas companies for chips,” he said. “The U.S. government and industries must think about the long-term solutions.”

To regain and continue as a leader in chip technology, Asaduzzaman is advocating for the government, corporations and academia to all play a role.

This can be done by offering advanced coursework to equip students to develop new chip design techniques, optimize and streamline chip applications and reinforce awareness around chip needs, Asaduzzaman said.

How manufacturers are pivoting

Micron is working to mitigate the impact of broad electronics industry shortages to its production output through “proactive and disciplined supply chain and inventory management strategies,” said a company spokesperson. “We are closely monitoring the situation and working hard to meet our current confirmed orders to supply our customers in all industries.”

The company is “making strategic decisions to optimize manufacturing and has placed a tremendous focus on building supply chain resiliency through data analytics to understand and mitigate all risks.”

Micron is also actively working to anticipate shortages to ensure officials have access to the critical source materials and integrated circuits needed to manufacture its products, the spokesperson said. “Our diversified manufacturing locations help us distribute risk and ensure we can continue to serve our customers worldwide.”

Some of Micron’s customers are experiencing non-memory component shortages in their end markets, and the company is working with them to understand demand trends. For example, “with memory DRAM being in short supply, as part of our disciplined supply management, we do expect longer lead times from customers,” the spokesperson said.

In addition, the ability for customers to be flexible and switch between products is becoming more limited, the spokesperson said. “We have been careful to communicate these changing factors to our customers who, by and large, have been supportive.”

RAKwireless, a chip and IoT hardware manufacturer that works with Amazon Alexa, Google Home and Microsoft, has taken a three-pronged approach that solutions architect Jose Marcelino said has increased their sales volume.

“First, we do long-term planning and we already maintain substantial buffers and [are] placing orders to secure key parts before the worst wave hits,” Marcelino said.

RAKwireless also benefits by being a global company and its partners and collaborators all over the globe help find parts in local markets that are not visible through large distributors, he said.

“Our collaborators also do a lot of detective work around the supply chain, we don’t just rely on the information presented on online portals,” Marcelino said.

The third and perhaps most important aspect is that they can make large, upfront commitments for the future, “placing the sort of informed bets,” so to speak, Marcelino said.

It’s important to always cultivate their contacts and partners–not just when disaster strikes, he said. “Often, the answers are not on the numbers on some faceless website but with real people behind them. Nurture a diversified workforce, especially in key supply markets.”

Marcelino also advised that manufacturers “always keep a healthy component buffer. There is a push to minimize costs by keeping a lean just-in-time supply chain. This works wonders when the supply chain is well lubricated, but that efficiency comes with often under-appreciated big risks when things are not so smooth.”

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